The Chancellor's 'dangerous obsession' with wrong-footing Ed Balls is wrecking his own reputation

George Osborne and Ed Balls do not get on. Anyone doubting the fact would have been rudely disabused by last week's Commons 'debate' on banking when the pair spent 90 minutes knocking lumps out of each other rather than discussing the interest rate fixing scandal.

Unfortunately for the Chancellor, he is coming off a poor second best.

Osborne's ill-judged interview with the Spectator last week in which he insinuated that Balls was involved in the illegal fixing of interest rates by Barclays and others.

Allegations: Mr Osborne said that Ed Balls was 'clearly involved' in Libor scandal

Furious: Ed Balls was angered by Osborne's comments saying that the claims were unsubstantiated

The claim has now backfired spectacularly after the Bank of England's deputy governor Paul Tucker made it clear he was not leant on by any Labour minister to intervene to bring down bank interest rates.

The result is that even Tory MP Andrea Leadsom, who has led the inquisition of the banks, is now calling on the Chancellor to apologise.

'Obviously he has made a mistake and I think he should apologise,' she said.

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Osborne has no intention of apologising and his aides point out furiously that he never quite said Balls was directly involved, merely that as Labour's former City Minister he had 'questions to answer' about the last government's disastrous failure to regulate the banks.

Unfortunately it is not the first time Osborne has been suckered by his Labour shadow.

Mr Balls also gets under the skin of David Cameron, with the Prime Minister once famously - and rightly - branding him the most irritating man in British politics.

Some Tories believe Balls is developing a worrying hold over Tory high command.

Chipping in: Former Conservative Chancellor Norman Lamont has since said that Osborne has 'overplayed his hand'

One senior minister said that both the PM and Chancellor were 'dangerously obsessed' with the Shadow Chancellor.

‘I understand why they are – he is irritating – but it is a dangerous distraction from the business of government,’ he says, citing the recent decision to postpone a 3p rise in fuel duty as another example of the Chancellor dancing to his Shadow's tune.

'The delay in the fuel duty rise appears to have been done simply to wrong foot Balls for five minutes in the Commons Chamber. The petrol price is coming down anyway. We will get no credit for it – I have not had a single letter about it.’

Obsession: One senior minister said that both the PM and Chancellor were 'dangerously obsessed' with the Shadow Chancellor

All this might be bearable if the Mr Osborne were riding high. But his stock has been sinking fast since the disastrous Budget, which has been followed by a string of high-profile U-turns on everything from charitable giving to hot pasties.

Some MPs believe Osborne now needs to get back to doing his day job rather than spending half his week plotting the next election campaign and organising the Tories for the Scottish referendum.

But others go further, suggesting he should be moved from the Treasury before the next election.

One senior figure said: ‘George doesn’t have a single friend left on the backbenches. It is extraordinary. There is no constituency pressing for him to keep his job. It is a straightforward calculation for the Prime Minister whether he feels he owes it to George to keep him there, and whether moving him would be seen as an admission that the Government’s economic plans had not worked.

In truth, it is highly unlikely that Osborne will be moved, as he appears to retain the PM's full confidence. But the fact it is even being discussed should serve as a warning to the Chancellor to draw in his worns.

No-one is suggesting he should try and learn to like Ed Balls. And there is some truth in the argument put by the Chancellor's allies that it still pays to remind the public of the corrosive role he played in the last Labour Government.

But when even your own MPs are calling for you to apologise, it is a sure sign that you have gone too far.